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AFD AND CAMBODIA

Build together a sustainable development

AFD’S STRATEGY

Cambodia Cambodia, in the heart of South-East Asia, has a population of 14.3 million. After years of war under the Khmer Rouge regime and Vietnamese occupation, peace gradually returned to the country after the Paris Accords were signed in 1991. Severely weakened by these difficult years, the economy has recovered and opened up to international markets when Cambodia joined ASEAN (Association of South-East Asian Nations) in 1999 and the World Trade Organisation in 2004.

Agence Française de Développement (AFD) was authorised to begin activities in Cambodia in 1993. Its Phnom Penh agency opened in September of that year. Historically, AFD has focused on grant support to agriculture and to the urban development and health sectors. Since July 2009, the AFD’s means of action in Cambodia have evolved significantly. To support Cambodia’s growth, the AFD, in consultation with Cambodia’s authorities, has directed its support to productive sectors via non-sovereign loans, i.e. direct loans to public and private companies or banks without guarantees from the Royal Government of Cambodia.

Today, agriculture, textile manufacturing and tourism are the mainstays of Cambodia’s economy. Economic growth was estimated at 6.5% in 2012 by the International Monetary Fund and is expected to stabilise at around 7% in the next few years. Although Cambodia’s economic development has been remarkable, it has not benefited the majority of the population. GDP per capita was still less than 820 USD in 2011. Furthermore, lack of diversification still makes the country’s economy vulnerable to market shocks and competition from neighbouring countries.

In July 2012, Cambodia became eligible for sovereign loans from the AFD, when the IMF raised its debt sustainability ranking. Today, the main target sectors for AFD intervention are: a griculture and agro-industry; i nfrastructure; t he productive sector; v ocational training (for textile manufacturing and tourism, and potentially for agriculture).

After its reconstruction phase, Cambodia now has to determine and consolidate its position in a rapidly changing region with potentially large-scale market opportunities (ASEAN, China).

Distribution by sector of net AFD and PROPARCO commitments, 1993 to 2012

Cambodia’s natural resources, cultural and architectural heritage and youthful population are undeniable assets for dynamic development.

53 14

This is the context of AFD intervention to support Cambodia in its efforts towards sustainable and equitable development.

in %

Infrastructure

A griculture

Manufacturing clothes in a textile factory

S upport to the productive/ financial sector

Health Other

Since 1993, the AFD group (AFD and PROPARCO) has awarded more than 270 M€ in total project funding to Cambodia, including to 70 projects in 2012.

FORMS OF AFD INTERVENTION The AFD Group in Cambodia is in a position to call on a wide range of supporting financial products:

t raining and capacity building for businesses through the AFD enterprise university, CEFEB (centre for financial, economic and banking studies) based in Marseille: diploma courses, short seminars or seminars on request;

c oncessionary sovereign loans to the State; n on-sovereign loans to public or private enterprises, concessional or not and without State guarantees;

p reparatory studies prior to project examination and strategy studies by sector.

l oan guarantees (in particular through the ARIZ scheme for individual guarantees or portfolio guarantees in partnership with local commercial banks);

AFD also provides grant funding for regional activities (15.1 M€ in the last few years): these include projects to control emerging diseases with the Pasteur Institute network, implementation of a regional scheme to promote geographical indications and several activities to support the Mekong River Commission (MRC).

e quity or quasi-equity investments; g rant financing for development or technical assistance programmes, including grants from the FGEF (French Global Environment Facility) or the PRCC (business capacitybuilding programme) and for NGOs;

PROMOTING PHNOM PENH’S URBAN DEVELOPMENT TO BOOST ECONOMIC INTEGRATION AND EMPLOYMENT

To cater for constantly growing demand, especially from out lying neighbourhoods, the PPWSA is implementing a major investment programme to increase its production capacity and extend its water supply network. Since 2006, the AFD has awarded financing to the PPSWA under highly favourable conditions (4 M€ in grants and 57 M€ in loans on highly preferential terms).This has resulted in significantly increased production and tens of thousands of new water supply connections each year, particularly in the poorest communities. The most recent AFD loan will enable the PPWSA to meet drinking water demand in Phnom Penh and its urban area by 2020.

In a context of sustained economic growth, AFD is promoting development in Cambodia’s capital city by supporting investments in essential services.

AFD is also helping to modernise and develop street lighting in Phnom Penh with a non-sovereign loan of nearly 12 M€, for which an agreement was signed in December 2012 with the CITELUM company. This project will enhance Phnom Penh’s attractiveness for businesses and tourism as well as improving security, by renovating and extending the city’s functional street lighting by 46% and installing architectural lighting for twenty outstanding monuments and sites.

These include investments by the Phnom Penh Water Supply Authority (PPWSA) to provide the city’s inhabitants with access to drinking water at the best possible quality and price. Thanks to the quality of its network, to technical and financial support from funding agencies and to its exemplary management, the PPWSA is achieving outstanding levels of technical and financial performance. It has become a real success story in Cambodia and elsewhere in the world.

Finally, AFD has awarded a 4.5 M€ grant to co-finance the rehabilitation of Phnom Penh’s central market (2004-2011), which dates back to September 1937. This operation has restored the former beauty of the capital city’s central market while ensuring compliance with all public safety, health and environmental standards for stallholders and customers, thus helping to boost trade. An autonomous management authority has been set up to ensure continuity.

Phnom Penh Water Supply Authority pumping station

VOCATIONAL TRAINING IN TEXTILE MANUFACTURING, A CORE ISSUE FOR CAMBODIA AND THE AFD

AFD has been actively involved in this sector for almost 10 years to improve conditions for textile workers and thereby improve productivity in the sector.

Manufacturing clothes in a textile factory

The textiles and clothing sector, one of the largest in Cambodia’s economy, generates over 70% of all the country’s exports and contributes nearly 18% of its GDP and 77% of its industrial added value. Although it was severely hit by the global economic crisis in 2009, the textiles and clothing sector has remained dynamic and is a strategic lever for growth in Cambodia. Cambodia’s competitive edge over other countries in the subregion lies in the low cost of labour. However, the sector’s viability in the longer term largely depends on its capacity to improve its competitiveness in a context of rising employment costs.

P IONEERING INTERVENTION FOR THE IRRIGATION SECTOR Some 80% of Cambodia’s population lives in rural areas. Agricultural development is one of the most effective ways of raising living standards for poor communities and boosting economic growth in the country as a whole. AFD has identified agriculture as a priority for intervention in Cambodia.

AFD’s first funding project, in 2005, was to support the introduction of a corporate social responsibility label, called “Better Factories Cambodia”, in partnership with the International Labour Office. The next was a pilot project (Health Insurance Project – HIP), aiming to offer a voluntary health insurance scheme to employees in the sector. Today, some 6500 workers have health cover under this scheme. In Cambodia, social security is gradually becoming a reality with the creation of the National Social Security Fund (NSSF), which has covered workplace accidents in the formal sector since 2008. Thanks to the data collected under the HIP scheme, compulsory health cover under the NSSF should be extended to the entire formal sector (about 700 000 employees) by the end of 2013. In 2012, AFD awarded a loan to the GMAC (Garment Manufacturers Association in Cambodia) to build a vocational training centre for the textile industry and organise training for future trainers. This project will enable some 8000 Cambodian employees to apply for middle management and management posts that are occupied by Asian expatriates at present, as the local workforce lacks the relevant skills. Finally, in 2013, again in partnership with the International Labour Office, AFD launched a study of the impact of works canteens on the health and productivity of workers.

The most recent project (a 20 M€ sovereign loan associated with a 4 M€ grant for the period from January 2013 to December 2017, in parallel with financing from the Asian Development Bank) aims to strengthen capacities among the different players (State and non-State) involved in the irrigation sector and to rehabilitate 11 irrigated areas and some thirty Preks.

Building on its experience with the rehabilitation of the Prey Nup polder area (over 10 000 hectares rehabilitated in 1997-2008 thanks to a 10.75 M€ grant), including a social management model that has now become national policy, AFD has co-financed large-scale projects with the Asian Development Bank that aim to extend irrigated areas and support improvements in the regulatory and institutional framework governing the water resource management sector.

Since the late 1990s, AFD has supported Cambodia in its efforts to rehabilitate and modernise its irrigation systems and develop a sectoral policy ensuring the sustainability of the renovated irrigation areas. This policy is designed to promote autonomous and responsible management and infrastructure maintenance by water users’ associations.

A rehabilitated irrigation channel

S UPPORT TO THE RICE‑GROWING SECTOR Thanks to the AFD’s activities in the irrigation sector, Cambodia is now not only self-sufficient in rice but grows enough paddy rice to export its surplus. Since 2005, Cambodia’s rice production has increased by 15% a year.

The AFD’s funding project is in line with these goals, as it aims to: s trengthen the capacities of the different players in the sector as well as interministerial coordination; i ntroduce a quality assurance policy;

An AFD grant is helping Cambodia to achieve its ambitious goal of becoming one of the world’s main exporters of milled rice and reach one million tonnes in exports by 2015. This will require substantial investments and involvement from all public and private partners.

p romote fair contracts between rice-growers and rice companies;

s trengthen the capacities of the Rural Development Bank to ensure that it can fully perform its role in financing the different players.

Tending a rice crop

DEVELOPING FOREIGN FILM PRODUCTIONS IN CAMBODIA, A NEW WAY OF SUPPORTING ECONOMIC DEVELOPMENT In 2009, AFD implemented a 1.5 M€ commercial capacity-building programme (PRCC) to support the creation of the Cambodian Film Commission (CFC). The CFC’s role is to increase foreign currency earnings by developing foreign film, advertising and video-clip productions in Cambodian and maximising local added value from film shoots. © CFC – Sovichea CHEAP

Since its creation, the CFC has launched over 80 projects for international film shoots, which include more than 10 feature films. By improving Cambodia’s attractiveness as a film location, the CFC has demonstrated its effectiveness in terms of job creation, impacts on the tourist sector, foreign currency earnings and visibility for the AFD. The second phase will put the CFC on track towards technical, financial and institutional self-sufficiency, which will enable it to promote its experience as a model for the region (PDR Laos). A film shoot

AFD is continuing to help the sector to address new challenges such as risks of debt distress among customers and the necessary diversification of financial products and sources.

Corn harvesting

M ICROFINANCE: FUELLING GROWTH THROUGH INCLUSIVE FINANCE FOR CAMBODIA’S POPULATION In a country with 80% of the population living in rural areas and little penetration of the banking system, micro-finance is of great importance for accessible and inclusive finance. By facilitating access to credit, micro-finance is vital to Cambodia as a way of fuelling growth and employment. AFD works in this sector at three economic levels (micro, meso and macro), calling on the entire range of financial tools at its disposal. AFD has been supporting the development and organisation of the micro-finance sector since it first emerged in the early 1990s. In 1993, it awarded its first grant in this sector to finance an emergency decentralised programme to develop access to credit in rural areas and promote small businesses in the informal sector.

An € 800,000 grant has just been awarded to the Cambodia Microfinance Association (CMA). AFD is also considering non-sovereign loans to selected microfinance institutions to improve power supplies to rural households by disseminating solar panels.

PROPARCO PROPARCO is the AFD subsidiary specialising in private-sector financing. It is an institution for development financing whose aim is to finance operations that are socially equitable, environmentally sustainable and financially profitable. It extends medium and long-term loans at market conditions, in euros, dollars or local currencies and financing through share capital acquisitions or guarantees. PROPARCO has been authorised to operate in Cambodia since 1996. It has a broad mandate enabling it to finance projects that support sustainable growth and poverty reduction. PROPARCO has thus invested in the microfinance sector, the rice growing sector and airport infrastructure. It has awarded loans to three microfinance institutions in Cambodia (HKL, TPC and AMRET) and to the country’s largest commercial bank, ACLEDA, which is also active in microfinance. PROPARCO also has shares in AMRET. In the agricultural sector, it has supported the rice company Golden Rice with a loan. Finally, it has helped to finance expansion of the Siem Reap and Phnom Penh airports through loans awarded to Cambodia’s airport operator SCA (Société concessionnaire des aéroports). With total committed loans of about 57 M€ up to 2013, Cambodia is one of PROPARCO’s main intervention countries in Asia, in terms of the number of investments but also historical ties.

From 1995 to 2004, AFD continued to support this sector on two levels: at government level to help develop and implement appropriate regulations for the sector, and to help 9 microfinance institutions (MFI) develop their institutional structure and ensure financial viability, geographical expansion and technical capacity-building.

Now that the sector has matured, PROPARCO, AFD Group subsidiary specialising in private-sector financing, is providing finance in its turn to help consolidate and develop MFI activities.

Rice company Golden Rice

F INANCING NGO INITIATIVES

In the last few years, AFD grants have supported NGO projects in a variety of sectors, including agriculture (AFDI – French farmers and international development; AVSF – agronomists and veterinarians without borders; GRET – group for technological research and exchanges; MFR – rural vocational training centres), health (ACTED – agency for support to technical cooperation for development; CRF, the French Red Cross; DSF – pain management without borders), education (Enfants et Développement), drinking water supplies (1001 Fontaines), vocational integration (Phare Ponleu Selpak), access to financial services (CCIM - Centre international du Crédit mutuel and EdM – Entrepreneurs du Monde) and human rights (ASF – lawyers without borders). Altogether, AFD has awarded a total of more than 6 M€ to NGOs working in Cambodia.

In 2009, AFD was given a new mandate to finance projects initiated by civil society organisations.

The Independency monument

The new conditions for AFD intervention, via sovereign loans, should open up prospects for new operations in sectors such as vocational training, tourism energy, water and sanitation, modernisation of urban markets, waste management, public transport and urban heritage conservation.

The 70 M€ in loans to Cambodia in 2012 reflects the rising importance of AFD, which is likely to become one of the leading bilateral funding agencies in the near future. As AFD scales up its activities in Cambodia, these should also become increasingly diverse.

In the next few years, AFD expects to commit some 50 M€ per year (all instruments taken together) for Cambodian institutions and businesses, in addition to the guarantees it may offer the banking sector to support the goal of promoting small and medium enterprises.

FUTURE PROJECTS

AFD also expects to launch non-sovereign loans for the agroindustrial sector or for some of Cambodia’s commercial banks, to help them develop the fabric of small and medium enterprises in rural areas, since SMEs are the main lever for sustainable growth in the private sector in the years to come.

Phnom Penh central market

Agence Française de Développement (AFD) is a public development finance institution that has been working to fight poverty and foster economic growth in developing countries and the French Overseas Communities for seventy years. It executes the policy defined by the French Government. AFD is present on four continents where it has an international network of seventy agencies and representation offices, including nine in the French Overseas Communities and one in Brussels. It finances and supports projects that improve people’s living conditions, promote economic growth and protect the planet, such as schooling for children, maternal health, support for farmers and small businesses, water supply, tropical forest preservation, and the fight against climate change. In 2012, the AFD awarded over 6.9 billion euros to finance projects in developing countries and Overseas France. These projects will be contributing in particular to primary schooling for 10 million children and secondary schooling for 3 million, and to improved drinking water supplies for some 1.79 million people. The energy efficiency projects launched in 2012 will save almost 3.6 million tonnes of CO2 equivalent per year.

AFD PHNOM PENH 5, rue 106, BP102 Sangkat Wat Phnom. Khan Daun Penh Phnom Penh – Cambodge Tél. : (855) 23 426 360 Email : afdphnompenh@afd.fr http://cambodge.afd.fr

www.proparco.fr

PROPARCO, AFD’s subsidiary dedicated to private investment, promotes private investment in emerging and developing countries in order to boost growth, promote sustainable development and reach the Millennium Development Goals. Its financing is tailored to the specific needs of investors in the productive sector, financial systems, infrastructure and private equity investment.

FFEM

5 rue Roland Barthes 75598 Paris Cedex 12 – France Tél. : +33 1 53 44 31 31 Fax : +33 1 44 87 99 39 www.afd.fr

www.ffem.fr

FFEM is a bilateral public facility set up by the French Government in 1994 following the Rio Summit. It aims at promoting global environmental protection via sustainable development projects in developing or transition countries. The French Global Environment Facility supports physical projects in recipient countries. Its operations are learning-based and support experimental, innovative or exemplary approaches.

This publication was printed in an environmentally responsible manner using vegetable-based ink and PEFC™ paper, chain of custody n° 10-31-945 (sustainable forest management).

Creation: Planet 7 – May 2013

AGENCE FRANÇAISE DE DÉVELOPPEMENT (AFD)